CME: No plans to shut grains floor trading

Exchange has no plans to withdraw new price settlement rules

November 28, 2012|Reuters

Traders in the soy bean pit at the Chicago Board of Trade. (Reuters)

The CME Group, the biggest operator of U.S. futures exchanges, has no plans to shut open-outcry trading pits but will not change new price settlement rules for grains despite a lawsuit by a group of traders, its CEO said on Wednesday.

Gill said the company "fully expected" the ruling by a Chicago judge on Monday allowing the grain traders to go ahead with a lawsuit to overturn the CME's new end-of-day settlement rules that they say are killing business in the trading pits.

The CME has no plans to withdraw the new settlement rules that include transactions done electronically, where the bulk of the volume comes from.

"It has to make sense to our client base not just to a small group of traders who somehow feel that they have been displaced," said Gill, who is in Singapore for a derivatives industry conference.

Prior to the change, CME had a century-old tradition of settling futures prices for crops like corn and soybeans based on transactions executed in the pits.

Gill said the bourse has no plans to close floor trading as long as liquidity was there.

"If the liquidity exists, why kill the goose? It's profitable, it's not an issue to us. The customers have chosen to stay on the floor, why would we shut it down? It makes no sense."

The change in settlement rules "has caused a rapid, dramatic decrease in trades" for floor traders and "will eventually effectively eliminate the CBOT open outcry market for agricultural futures," according to the lawsuit.

EYES ON ASIA

Malaysia-born Gill took the helm at the Chicago-based company in May with plans to make the 164-year-old U.S. futures powerhouse more international.

In August, CME announced plans to launch a London-based exchange, its first outside the U.S., hoping to break the duopoly of NYSE Euronext and Deutsche Boerse AG .

Pending regulatory approvals, Gill said he expects the European exchange to be set up by the second quarter of 2013.

Non-U.S. revenue accounted for 25-30 percent of CME's topline, he said, although business from Latin America and Asia was growing rapidly.

"As we get more clarity with respect to the changes that are occurring in this part of the world, specifically in China and what we think the impact might be on other countries in Asia, it may make sense for us to open an exchange here," he said.

The Asian exchange will target Chinese clients, and Singapore and Hong Kong were possible locations given their trusted regulatory environment, he said.

"Five years from now, the Philippines might be a good example. It's coming along, we are seeing the progress being made there."

But Gill said CME, which has stakes in several foreign exchanges, including in Brazil and Dubai, does not see the need to set up a bourse in Asia at this time.

CME also hopes to benefit from an ongoing overhaul of the $650 trillion swaps market via the 2010 Dodd-Frank law which will need for swaps to be traded more transparently in a bid by regulators to avoid a replay of the 2008 global financial crisis.

The bourse is launching a new product, deliverable interest rate swap futures, next Monday, days after U.S. regulator Commodity Futures Trading Commission approved its application to run a new data warehouse.

"Dodd-Frank, in a perverse way, has created some very good opportunities for us," he said.